Buying an Existing Business: The Due Diligence Checklist
Due diligence when buying an existing Australian business means verifying, with documents rather than the seller's word, that the profit is real, the lease and licences will transfer to you, the staff entitlements are funded, and nothing on the PPSR or in the contracts will follow you home. Most deals go wrong not because the buyer skipped the checklist but because they accepted the seller's summary of it. Here's what to demand and where the contract of sale bites.
Why buy instead of start
Buying gets you customers, staff, suppliers, a location and cash flow on day one, plus a track record to show a lender, which matters if you don't own property (see business loans without a house).
The trade-off is price and risk. You pay for goodwill, a bet that customers keep coming once the founder leaves, and the seller knows far more about the business than you do, which is the whole reason due diligence exists.
What a small business is worth
Sellers price small businesses as a multiple of profit. For an owner-operated business the profit figure is usually seller's discretionary earnings (SDE), also called PEBITDA: net profit before interest, tax, depreciation and amortisation, with the owner's wage added back. For businesses that run under a manager, it's EBITDA after a market-rate manager's salary.
Published ranges from Australian brokers and valuers (as at September 2026):
| Business type | Typical multiple |
|---|---|
| Owner-operated, most industries | 1.2x to 3x SDE/PEBITDA |
| Childcare centres (owner-operated) | 1.8x to 2.9x PEBITDA |
| Managed businesses with a management team | roughly 3x to 6x EBITDA |
Treat those as context, not a formula. The multiple moves on how dependent the business is on the person selling it, how verifiable the profit is, and how much revenue is locked in by contracts. A cafe where the owner is the head barista deserves a lower multiple than a commercial cleaner with 18 months of signed contracts.
Watch the add-backs. Sellers "normalise" profit by adding back costs they say you won't have: their own wage, a family member's car, a one-off legal bill. Check every one; if the owner's partner does the books unpaid, that's a cost you'll incur. And confirm whether the price is "plus SAV" (you pay extra for stock at valuation).
The due diligence checklist
Ask for everything below before you sign anything binding, or make the contract conditional on satisfactory due diligence within a fixed period (two to four weeks is common).
Financials: three years minimum
- Profit and loss statements and balance sheets for the last three financial years, plus year-to-date management accounts.
- The lodged income tax returns for the same years. The accounts a seller gives a buyer and the ones they gave the ATO should tell the same story.
- Bank and merchant statements for at least 12 months, reconciled against reported sales. Cash businesses are where both hidden and inflated income live.
Tax and ATO lodgements
- Every BAS for the last two to three years, with evidence they were lodged and paid on time; habitual lateness means cash-flow trouble.
- PAYG withholding and superannuation guarantee payments for staff. Unpaid super becomes yours if you take over the employing entity.
- Confirmation the seller is registered for GST, and that you will be by settlement. Both are required for the sale to be GST-free (more below).
The lease
For most retail, hospitality and trade businesses the lease is the business.
- Remaining term and options. A cafe with 14 months left and no option is worth a fraction of one with a 5+5 lease.
- Whether the lease can be assigned to you. Landlord consent generally can't be unreasonably withheld, but expect to provide financials, references and a personal guarantee.
- Whether your state's retail leases legislation applies. If so, the landlord must give you an updated disclosure statement before the assignment.
Staff and their entitlements
Under the Fair Work Act, a transfer of business happens when you hire the seller's employees within three months to do substantially the same work and there's a connection between the businesses (buying the assets counts). Then:
- You must recognise their prior service for personal/carer's leave, parental leave and flexible-work requests.
- If you're not an associated entity of the seller, you can choose not to recognise prior service for annual leave, redundancy pay and the unfair-dismissal minimum employment period. You must tell each employee in writing before they start with you; the seller then pays out the annual leave at settlement.
- Long service leave is state-based and generally carries across with continuous service.
Get every employment contract, award classification, pay rate and leave balance, and make sure the price adjusts for the entitlements you take on. Check the "contractors" too: if they work set hours under direction they may be employees regardless of the invoice (see the employee vs contractor test).
Contracts, suppliers and customers
- Supplier agreements: transferable? Minimum volumes or exclusivity?
- Customer contracts: how many are in writing, when do they expire, and do any have a change-of-control clause letting the customer walk on a sale?
- Equipment leases, software subscriptions, the domain name and social accounts, and confirmation they're all transferring.
Our guide to the nine business contracts you actually need shows what should exist.
Licences, permits and registrations
Food, liquor, trade and industry licences: find out which transfer with the business, which need a fresh application in your name, and how long that takes. A liquor licence transfer can take months and you can't trade without it. The business name transfers via a number the seller generates on ASIC Connect, valid for 4 months and 28 days; the ABN never does. You'll re-register the name under your own ABN ($47 for one year or $108 for three, as at September 2026).
Equipment, stock and the PPSR
- An asset register with serial numbers, age and condition; have expensive items inspected.
- Search the PPSR against every significant asset and the seller's ABN and ACN. It costs $2 per search online (as at September 2026) and shows whether a financier holds a security interest over the equipment, stock or whole business. Buy an asset with a registered interest and the financier can repossess it from you.
- A stocktake at settlement, at cost, with a right to reject obsolete stock.
- If the seller is a company, a current and historical ASIC extract (about $19, as at September 2026) shows the directors and any past external administration.
Goodwill: what actually drives revenue
Spend time in the business before you commit: watch the counter, ring as a customer, read the reviews, and ask who the top ten customers deal with. Goodwill that lives in one person's relationships walks out the door with them unless the contract makes them stay and help.
The contract of sale
Sale of business contracts vary by state, but all of them need to deal with the following.
Restraint of trade
A restraint stops the seller opening across the road and taking their customers back. Courts enforce restraints only as far as they're reasonable to protect a legitimate interest, but they're far more willing to do so in a business sale than in an employment contract, because you've paid for the goodwill. Most are drafted as cascading clauses with alternative periods and radii, so a court that finds the widest unreasonable can fall back to a narrower one. Make sure it binds the individual owners, not just the selling company, and covers poaching staff and customers.
Warranties, adjustments and handover
- Warranties that the financials are accurate, there's no undisclosed litigation, all tax is paid and the assets are unencumbered, backed by a retention you can claim against.
- Adjustments at settlement for rent, outgoings, employee entitlements and stock.
- Handover: typically two to four weeks of the seller working alongside you.
- Conditions precedent: finance, landlord consent, licence transfers and satisfactory due diligence.
GST and transfer duty
The sale is GST-free as a supply of a going concern if the contract says so in writing, both parties are registered for GST, and the seller supplies everything necessary to keep the enterprise running and keeps running it until settlement. Miss one condition and 10% GST lands on the price.
Transfer duty on business assets survives in only two jurisdictions. As at September 2026:
| State or territory | Duty on non-land business assets (goodwill, plant, IP) |
|---|---|
| Queensland, Western Australia | Still payable |
| NSW, Victoria, SA, Tasmania, ACT, NT | Not payable |
Land and buildings attract duty everywhere, so a deal that includes the freehold is dutiable wherever you are.
If the business is a franchise, the Franchising Code of Conduct — the new version in force since 1 April 2025 — also applies: you get the disclosure document at least 14 days before signing or paying, and a 14-day cooling-off period after you sign.
Brokers, and whose side they're on
Business brokers act for the seller and are paid by the seller, typically 5% to 10% of the price for businesses under about $1 million, often with a minimum fee of $15,000 to $30,000. The information memorandum is a sales document: a list of claims to verify, not evidence.
Paying for it
Small-business goodwill is poor security, so most lenders want a meaningful deposit, property, or both. The common structures are a secured business loan over the assets you're buying (and often your home), vendor finance where the seller leaves part of the price in the business and is repaid over one to three years, and an earn-out tied to post-settlement results.
Decide your structure before you sign. If you're buying through a company or trust, that entity needs to exist and hold its own ABN and GST registration before settlement. Our guide to sole trader, company or trust covers the choice.
Common traps
- Buying the shares instead of the assets. Buying the seller's company means inheriting every liability it has ever incurred, disclosed or not. Small-business buyers almost always buy the assets instead.
- Paying for a "cash component". A seller who says the real takings are higher than the books is asking you to pay for income they've hidden from the ATO. You can't verify it, and you're buying a tax problem.
- Buying a job. If the profit only works because the owner does 70 hours a week for a $50,000 add-back, you're buying a job, not a business.
Key takeaways
- Due diligence means documents, not conversations: three years of financials and lodged tax returns, every BAS, the lease, staff leave balances, and a PPSR search.
- Owner-operated small businesses typically sell for about 1.2x to 3x adjusted profit; test every add-back before you accept the multiple.
- You must recognise transferring staff's service for some entitlements and can opt out of others in writing; price the liability in.
- Get the going concern clause and both GST registrations right or the price goes up 10%. Duty on business assets still applies in Queensland and WA (as at September 2026).
- Buy the assets, not the shares, and make the contract conditional on finance, landlord consent and satisfactory due diligence.
Where to get help
- business.gov.au has a buying-an-existing-business guide covering valuation and due diligence.
- Fair Work Ombudsman (fairwork.gov.au) for transfer of business rules and which entitlements carry across.
- ATO (ato.gov.au) for sale of a going concern and your GST and PAYG obligations as a new owner.
- PPSR (ppsr.gov.au) for security interest searches; ASIC Connect for company extracts and business name transfers.
- Your state revenue office for transfer duty, and your state small business commissioner for retail lease disputes.
- Your accountant for the financial review and structuring, and a commercial lawyer for the contract of sale, lease assignment and restraint.
Frequently asked questions
How much should I pay for a small business in Australia?
Most owner-operated Australian small businesses sell for roughly 1.2 to 3 times their adjusted annual profit, with the multiple depending on the industry, how much the business relies on the owner and how verifiable the books are. Businesses with a management team in place attract higher EBITDA-based multiples. The asking price is the seller's opinion; your job in due diligence is to test the profit figure the multiple is applied to.
Do employee entitlements transfer when you buy a business?
Some do automatically and some depend on what you decide. Under the Fair Work Act a new employer must recognise transferring employees' prior service for personal/carer's leave, parental leave and flexible-work requests. If you're not an associated entity of the seller, you can choose not to recognise their service for annual leave, redundancy pay and the unfair-dismissal minimum employment period, but you must tell each employee in writing before they start with you, and the seller then pays out those entitlements. Long service leave is governed by state law and generally carries across.
Do I pay GST when buying a business?
Usually not, if the sale qualifies as a GST-free supply of a going concern. That needs four things: both you and the seller are registered for GST, the contract says in writing that the sale is of a going concern, the seller hands over everything necessary to keep the business running, and the seller keeps trading right up to settlement. If any leg fails, GST is payable on the price, so get the clause and your GST registration sorted before you sign.
Is stamp duty payable when buying a business?
It depends on the state. As at September 2026, Queensland and Western Australia still charge transfer duty on business assets such as goodwill, plant and intellectual property. NSW, Victoria, South Australia, Tasmania, the ACT and the Northern Territory don't charge duty on those non-land assets. Every state charges duty if the deal includes land or a building, so a sale that bundles the freehold is dutiable wherever you are.
Can I keep using the seller's ABN and business name?
You can take over the business name but not the ABN. An ABN belongs to the legal entity, so you'll use your own and re-register the business name under it with a transfer number the seller generates through ASIC Connect. The transfer number is valid for 4 months and 28 days, and re-registration costs $47 for one year or $108 for three (as at September 2026).
General information only. This guide doesn't take your personal or business circumstances into account and isn't financial, legal or tax advice. Rates and thresholds change — check the official sources linked in this guide and get qualified advice where your circumstances require it.